Hi Reader!

​
Every budget only ever has two sides: expenses and income. In the last newsletter, we looked at how to track and manage your expenses, but what can you do about income?

You may plan out your expenses knowing that a paycheck is forthcoming, but what if something happens to that paycheck? If there is a surprise, how much time do you have for bills that need to be paid? Even if you have a regular paycheck, mistakes can change your income. I once had an HR mistake unexpectedly delete half my paycheck. If you work variable hours, earn commission, or run your own business, you already know how frustrating an inconsistent paycheck can be.

How can you ride out the waves of income for smoother sailing? You need a buffer between your money coming in and money going out. Enough breathing room to give predictability and time to react to changes. Here are two different approaches to building an income buffer.

Build a Time Buffer: Become a Month Ahead

Save up a whole month’s expenses, including what you put away each month for savings, on the 1st of the month you have everything ready to cover all expenses. That means that last month's income is paying for this month, and this month’s income is paying next month. You are a month ahead. Now the timing of your bills doesn’t need to match the timing of your paycheck. You can build this gradually over time, starting with half a month and building up to multiple months of buffer if your situation calls for it.

Build a Salary Buffer: Pay Yourself a Steady Income

Create a separate holding account where all of your income is sent first. Then simulate a regular salary by auto-distributing funds to your regular spending accounts in set amounts at set times. Estimate your yearly income and divide by 12 to get your monthly fixed “salary”. This lets the holding account buffer the ups and downs of highly variable income so your day-to-day budget stays smooth and predictable.

Depending on the variability of your income, one or both of these strategies may be right for you. Either way, the goal is the same: less reacting, more deciding. As your money becomes more predictable, money will become less stressful, and you will have the power to spend without worry.

Next newsletter, we're looking at the savings puzzle: how much to save, what to save for, and how to know when it's okay to spend it.

Want to learn how to set up these income buffers? Schedule a FREE Penny for Your Thoughts Q&A Call​

​
Remember, small change adds up. Step by step and penny by penny, we’re building a better life. Have a shiny day!

Laura

​
​